On the offensive with defense manufacturing

The ‘Make in India’ policy of the government has created a lot of buzz and it promises to boost different sectors of the economy and bring in related benefits too. When the stress is on indigenizing production, what better sector to focus on than the defense. It makes strategic sense and keeps the national interest paramount considering India has the third largest armed forces in the world. It also makes economic sense when we consider that the allocation for defense in the Budget (2015-16) was more than INR 2467 billion. Moreover, India imports about 60% of its defense requirements.

For a start, even if we look at 10% of the imports being substituted locally, the value is a massive INR 15 billion. Clearly, apart from national pride, strategic interest, and economic value, it makes business sense too, to manufacture defense products and services in India. Considering the recent announcement about Smart City projects in India, it is no coincidence that the city which figures among the top 20 of the Smart City list, Belagavi (Belgaum), is a major centre of defense manufacturing. The city is a hub for establishments and companies that specialize in manufacturing for the defense and aerospace industry, apart from outsourcing and manufacturing partners that focus on the sector.

This “Make in India’ initiative and the defense task force recommendations have made the terms of partnership easier, leading to a win-win deal for both partners. It would now be pertinent to focus on what makes for a good defense partner and partnership. To start with, Indian manufacturers can focus on those projects that have ‘acceptance of necessity’ and in the categories of ‘Make Indian’ or ‘Buy and Make Indian’. Initial ventures into manufacture of defense products can focus on those parts, components, castings, forgings and other equipment that are exempt from the purview of the industrial licensing list. These are lucrative enough and provide an entry into the sector.

Since the defense task force has recommended that in the initial phase, only aircraft, helicopters, submarines, armored vehicles and ammunition would be considered for strategic partnerships, these would be no-brainers in terms of specific partnership areas. The task force also points to strategic partners that can play central roles in developing complex and strategic systems, or provide technology transfer in large defense contracts.

On their part, the Indian partner should have these capabilities to generate intellectual property along with design capabilities. They should be capable enough to up-skill the entire value chain and not be mere OEM players. Partnerships can be built into a sustainable franchise if the local partners have trained manpower and talent. Additionally, the partners should operate at a similar level of technology with the ability to even co-develop new cutting edge technologies for mutual benefit. The local companies need to be able to collaborate, design, and develop while also showcasing their engineering strength.

The other side of this is what the government can do to fast-track the process. Currently, not many Indian players in this market have the capability, skills and technology levels for defense manufacturing. The government could perhaps identify those companies that have the required design skill-set, a strong culture of R&D and those that make continuous investments and efforts in innovation. Such partners, though fewer, bring engineering capabilities and expertise in the sector so that the learning curve is minimized. Such companies bring significant advantages to a strategic partnership. These partner initiatives can serve as the benchmark for other engagements and build capabilities in other Indian companies over medium to long term.